A Brief Summation of Valuation

The true value of a business is like a stew: each ingredient on its own would not amount to much but, when all the ingredients are added, the sum of the whole is greater than the parts. If you are a business owner, you have probably wondered what the true value of your business is. Valuing your business is a process that considers both tangible assets (inventory, equipment, real estate, etc.) and intangible assets (goodwill).

Valuing your business has several benefits. First, you need to know what your business is worth before you can sell it. If your asking price is too high, it will be unlikely to sell. If the price is too low, you will be cheated out of receiving the fair value for your company. Also, by valuing your business you can identify potential issues that may make a future sale difficult, giving you time to fix the problem before pursuing a sale.

Three types of business valuation methods

There are three types of business valuation methods:

  1. Market-based approach: this approach values your business based upon the value of similar businesses
  2. Asset-based approach: this method bases the value of your business on the fair market value of your business’s assets
  3. Income-based approach: the value of your business is based on income, minus liabilities (debt, accounts payable).

Factors considered in business valuation

To obtain the true value of your business, certain factors that reflect the worth should be considered:

  • Cash flow history
  • Cash flow projections
  • Quality of assets
  • Quality of the brand (goodwill)
  • Recent comparable sales
  • Relative supply and demand of businesses for sale relative to capital looking for businesses to buy

Business valuation process

The process of valuing your business can vary, depending on the type of business and the business broker you choose. Our firm utilizes an easy 4-step process to reach an accurate assessment of what your business is worth:

  1. Gathering data
  2. Normalization of financial statements
  3. Defining the best valuation method for your business
  4. Arriving at the market value

Find out your business’s value with Tennessee Valley Group

If you are a business owner who is considering selling your company, the dedicated team at Tennessee Valley Group can help you receive the true value of what your business is worth. For more information on our business valuation services, visit us online at www.tnvalleygroup.com or contact our office at (615) 390-9966.

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Tennessee Valley Group

Jim Cumbee established Tennessee Valley Group to help business owners fulfill their dreams for life after business ownership. It’s a mission that his 30+ year career history had prepared him well for—in addition to being an attorney, transition mediator and business broker, Jim has been a buyer, seller, and entrepreneur. His broad range of experience gives him unique insight into how business buyers and sellers can achieve their goals.

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